Moving closer to the client

In Asia, the rapid accumulation of wealth in the past few years, driven by high market capitalisation growth and a strong global and domestic economy, have strengthened the position of Hong Kong (HK) and Singapore as the two leading financial hubs and private banking booking centres in the region, where trusted advisers cater to the needs of sophisticated wealthy individuals, for both their onshore and offshore assets. But an increasing number of international players are investing heavily into building their private banking domestic platforms in order to tap the wealth that, in large part, is still onshore in Asia, especially in countries like Taiwan, Indonesia and China – as well as HK and Singapore themselves. It is important to be in close proximity to to where the wealth is generated because 90 per cent of the wealth in Asia is still domestic, says Kathryn Shih, head of UBS Wealth Management in Asia-Pacific, explaining that her bank has footprint across 18 different locations. “We are close to our clients across the region and also in the big hubs of Hong Kong and Singapore client advisers have a country specific focus. Because of our size we can do that,” she says, adding that UBS is the largest private bank in the region in terms of assets under management. Lack of available talent But one of the biggest challenges that the wealth management industry has been facing in Asia for some time is the shortage of talented advisers. “It is a very tight market, because it is very small,” she says. Nevertheless, the 140-year old Swiss private bank has increased fourfold its number of relationship managers since 2004 in Asia, says Ms Shih. “We have hired tremendously in the past years from different sources, retail banking, corporate banking, but we have also recruited accountants and lawyers, as well as wealth managers from other firms.” Whether or not a contact network has a significant weight in the decision to hire a specific private banker depends on the level advisers are hired. “It is not that important that associates have a good network, because we teach them how to win clients,” claims Ms Shih, who has celebrated her 21st year with the Swiss firm. The importance of training What is really paramount is the training, she emphasises. And setting up the UBS training campus in Singapore is a clear demonstration of that. “The way we operate here in UBS is not the same way it is done elsewhere,” says Ms Shih, repeating that well-known formula, in truth shared by all private banks, that “at UBS the focus is on the client and new advisers need to be trained in that.” “Also we train advisers on product, because we have a very good and wide product platform. We want them to always be aware and be informed of the latest and important developments,” adds Ms Shih. “If you want to grow fast you need experienced advisers,” says Anuj Khanna, head of private banking North Asia at Credit Suisse. Mr Khanna explains the firm’s effort to build a medium to long-term pool of resources through Credit Suisse’s own business school in HK and Singapore, reportedly the first to be set up in Asia, back in 2005. “The question is how many trained senior advisers you need in the short term and how soon you get them and how to close the gap. That’s the challenge and that’s the cap on growth in the short-term,” he says. But hiring advisers is not enough. In the last few years, a lot of small players have got into the Asian market, hoping to get a slice of the growing pie of wealth and hired overpaid advisers to bring them on, leading to rampant poaching and soaring salaries and bonuses. A doomed model Their business model is doomed, warns Mr Khanna, because offering global private banking services implies scale and size. “Asian clients look for a very strong global brand, size, stability and scale. Then you need good quality advisers who go beyond just pushing products, but who are able to give systematic advice and who can rely on a global dedicated buy-side research team across all asset classes. You need a lot of product specialists to support the private bankers," he explains. “Without all that, it is difficult to go through market cycles like the current one,” says Mr Khanna. Retention was probably the biggest issue for private banks over 2006-2007, says Mr Khanna, hinting to the fact that last year’s turnover of advisers in the private banking industry was more subdued compared to the past. “The market was so hot and there were so many newcomers, so much inflation, things were out of control. People had head-hunters calling them all the time with these great offers. But what we found over the last few years is that money is not everything,” he says. Money is important, but as long as the management is strong, as long as people are happy where they work - which means that they have access to the right tools, the right products and the right platforms- and they are fairly compensated, your chance of retention is very high, he believes. Career mobility, job mobility and career development are key in retaining talent. “The advantage of a large global organisation which is building onshore operations is that people can get transferred to other locations,” says Mr Khanna. But still, the most critical aspect of how people behave in an organisation is how they are rewarded. “If you want to guide behaviour, you do it through reward, which can be cash or non-cash related,” he says. At Credit Suisse, like in other large private banks, the large amount of compensation comes from salary. “I would say about 60 to 70 per cent of total compensation of employees comes from salary, which is set in a way that they can have a comfortable lifestyle and can service clients in an unbiased way, and it reflects the person, experience, the grade and the seniority,” explains Mr Khanna. The product push approach Revenue is an important consideration to set bonus levels, but there are other behavioural factors too. Very often, for new joiners, compensation is based on net new assets and clients, rather than revenues, while experienced advisers have a base revenue target as well as a percentage for assets brought in. In Asia, there is still this product push approach, carried forward by brokerage houses as well as private banks and other wealth management institutions. The way advisers are remunerated, whether commissions are a high part of the salary, is an important consideration that may explain a higher share of discretionary based portfolios as opposed to advisory-based portfolios, but it is not the only one. “It is how you build your business model and how you drive that model and that changes with time also,” claims Mr Khanna. Segmentation required Most banks segment their client base on a multitude of factors, such as source of wealth, age, wealth spend. This helps to improve client service and contributes to make unique the experience that an investor has with a specific private bank, which increases client retention too. At Singapore-based DBS Group, one of the fastest mid-tier private banks in Asia, investors are classified mainly on their risk tolerance and their level of investment experience. “Our high risk clients will need services that are much different from those required by our very conservative clients,” explains Amy Yip, head of wealth management at the firm. “A much more experienced relationship manager and product specialists will service an experienced and very active trading-oriented investor, while a client who tends to be more deposit oriented may be serviced by a more generalist adviser.” Supporting the concept that premium services need to be offered to premium clients, Ms Yip says that “high risk clients will also probably need different products which have different fee structures, so our revenues will differ depending on what sort of product the client is investing in”. But clients’ objectives and needs must be reviewed on a regular basis as clients’ profiles and circumstances change, sometimes very suddenly. “For example,” explains Ms Yip, “many Asian investors have built their wealth on their businesses, such as manufacturing or exporting to the US or Europe. But because of the current slowdown in the export demand, the profitability of their business may be affected and they may be not generating as much cash as before.” And this implies a prompt reviewing process of clients’ needs. Referring clients Referrals are the best channel to acquire a new client, which is an all-time challenge. “The biggest compliment a client can pay to a private bank is to refer other clients to you,” says Ms Yip. The growth of a client adviser’s book of business gives us a measure of how happy clients are and it is an important driver for how client advisers at UBS are paid, states Ms Shih. “Referrals come mainly from our satisfied clients. If the client is happy, then he will bring in new assets, his share of wallet with the bank increases and he will also introduce his friends to you,” she adds. But the biggest challenge of all is perhaps to convert all that wealth that lies in deposits in retail banks in actively managed private banking assets. “It takes time to build up a wealth management business, because of the nature of the business itself” explains Ms Shih. “With new clients, often you get one or two chances and you have to go in and show your prospect what you can do for him in that one meeting. It takes a lot of work, research and preparation before-hand before you go and see a prospective client.”

Changing investors' attitudes It is recognised that Asian investors want to have a hands-on approach in the management of their wealth. In the region, high net worth individuals are mostly entrepreneurs and the first generation of wealth creators. They are actively working hard to make more money in their own businesses and they are looking to make the money they entrust to private bankers work as hard, this way defying the universal concept that private bank’s goal is to provide capital conservation while assuring conservative long-term growth. Most large private banks recommend a core and satellite approach, where the core part of the portfolio tries to achieve those objectives, while the satellite part allows the client to take more risk, to take heavier bets. “In the big bull run, people were making money by punting on stocks on their own and asking more for a stock trading advice,” says Kathryn Shih, head of UBS Wealth Management for Asia-Pacific. “With this major downturn, people are more willing to listen to our asset allocation proposition,” says Ms Shih. “We always see that after a downturn.” However, panic that has gripped investors recently makes them at the same time more reluctant to hand over their portfolios on a discretionary basis to private banks. “The discretionary part was increasing up until the crash, but now clients are taking a wait and see attitude,” says Mr Shih. “At times like this, I think there is an understandable instinctive response to take greater control wherever you can,” says Eric Sandlund, managing director and investment adviser at UBS Wealth Management. But in the long term, setbacks like the current one will also be able to prove the superiority of performance of discretionary portfolios, which in past have always outperformed advisory portfolios, according to UBS in-house research, says Mr Sandlund. The crisis has put spotlight on two fundamentals, which are trust and back to basics, says Wilson Aw, acting head of private banking at Singapore-based United Overseas Bank (UOB). “With the still unfolding financial market turmoil and financial institutions teetering on bankruptcy, what used to be fundamental bedrock of banking, the element of trust, cannot be taken for granted anymore.” What is now in vogue and it will probably be for some time to come is a return to basics, says Mr Aw. “Portfolio management, asset allocation among the basic asset classes, limited use of structures, only if they are transparent and effective, will be the defining features.” “Investors are still recovering from the losses they have suffered on the investment side,” says Amy Yip, head of wealth management at DBS Group. Investors are now much more focused on asset allocation and risk diversification. “Right now they are very heavily on cash and Asian credit, while they wait for the markets to stabilise,” says Ms Yip. Diversification of risk means diversifying the type of products in which they are invested, she says. DBS’s clients portfolios are allocated heavily towards Asia. “We are an Asian bank and how we differentiate ourselves from our global competitors is that we do emphasise Asia,” she says. There is a trend towards a heavier allocation to Asian markets particularly with the big turmoil on the credit side. Investors like very much a hands-on approach in their investments and, as understand the Asian markets more, it gives them some sort of reassurance to know the specific companies in which to invest, says Ms Yip. However, investors generally gain geographical diversification through the number of private banks they employ. “Asian clients allocate their exposure across a set of banks, so it is not unusual for them to have one or two American private banks, two or three European private banks and one or two Asian banks.” In China, Karen Chan, head of private banking at Standard Chartered, agrees that before the financial crisis people still tended to invest “in those quick wins channels, high-risk return channels, such as equities or private equities.” “Investors did not quite buy into the asset allocation model, but they were just investing in one particular structure or one product,” says Ms Chan. “Now they have started to be interested in listing to us, to see whether we have any better solutions. “These particular times are a very good chance for us to help the customer to understand what role private bankers can play in their lives.” The most important thing is to keep protecting their wealth and at the same time trying and find opportunities to grow investors’ money, she says. In this respect, structured products, which were shunned in the past as they put a limit to the amount of money investors can earn on the equity market, also gained popularity. “Now investors are interested in structured products because they can protect their capital but can still participate to the rise of the equity market,” says Ms Chan.

Amy Yip, DBS Group